As workers await their legislated 0.5% rise in superannuation next year, some employers and government MPs are attempting to cancel the ‘unaffordable’ increase.
As Paul Keating, former Prime Minister and architect of our super system, told ABC’s 7.30 this week, the increase equates to about $8 or two cups of coffee per week for the average worker.
“You think that $8 a week is going to upset the employment equation in Australia?” Mr Keating asked.
“…for two cups of coffee, people are supposed to walk away from their future?”
Those two cups of coffee – as well as the further planned increases to super – would make a huge difference to Australian workers’ retirement prosperity.
The current 9.5% super guarantee (SG) rate is legislated to increase to 10% next year and continue to rise incrementally until it reaches 12% in 2025.
The SG rate would already be 12% had previous Coalition governments not implemented freezes.
Following a recent government review in retirement income, there are signs the SG may not be increased at all.
The Financial Standard reports keeping super at 9.5% will reduce retirement balances by 12-18%, with lower income earners the hardest hit.
Modelling from the Industry Super Australia (ISA) showed a 20-year-old minimum wage worker with no existing super would be $92,000 worse off upon retirement if the SG rate is not increased to 12%.
A 40-year-old worker on an average wage with $95,000 of accrued super would be $73,000 worse off if the SG remains stuck at 9.5%.
Despite this modelling, criticism of super increases persists.
Mr Keating said the “rubbish” affordability argument was at odds with the government’s own review into the super system.
The review found “the Australian retirement income system is effective, sound and its costs are broadly sustainable”.
The review also noted that “without compulsory superannuation, middle income earners would not save enough for retirement”.
What about wages growth?
At the heart of criticism of super increases is the theory they come at the expense of wages growth.
However, as Keating points out, there has been both no increases in super and no significant increases in wages over the past seven years.
Keating also highlighted that in the period to 2012, workers generated 10% in increased productivity yet none of it was returned in real wages growth.
“People have earned the [increased] superannuation,” Keating said.
Shouldn’t people just manage their own retirement savings?
Another argument from those seeking to undermine super increases is that people should be left to manage their own retirement savings.
This would, in Keating’s view, leave many workers without the means to fund a dignified retirement as they would just “stop saving”.
Keating highlighted government policies that had already undermined the system by allowing early withdrawals of super.
During the COVID-19 pandemic, 600,000 Australians aged under 35 drained their super balances to zero – a loss of savings that is likely insurmountable in the years ahead.
The government’s review found the withdrawal of $10,000 for a worker in their 30s compounds to a loss of $100,000 upon retirement.
Keating said “not taking money out [of super] for housing deposits, not taking money out for education or health but leaving it in there to compound for a retirement income” was fundamental.
“That’s the whole point of [super] tax concessions,” he said.
Two super principles we cannot undermine
The super system is most effective where workers have enough money to invest and that investment is preserved until it is needed in retirement.
Undermining either of these principles poses a significant risk to workers’ retirement prosperity.
Without the compulsory requirement to invest in super, employees would not accrue the amount of retirement funds they need.
Without an increase to 12% super, more Australians will be left without sufficient funds and become reliant on the aged pension.
And without strict limitations on the early withdrawal of super, more employees would undermine their retirement investment before it’s had the chance to grow.
Proposals to disrupt these principles come at the expense of employees’ retirements; whereas, as we’ve seen over the past seven years, deferred or cancelled super rises simply increase employer profits.
Few workers would say two cups of coffee per week are preventing them from living a comfortable lifestyle, but for those very same workers two cups of coffee could be the difference between dignity and distress in retirement.